Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

16.

Income Taxes

 

On

December 22, 2017,

the Tax Cuts and Jobs Act (the

“2017

Tax Act”) was enacted. This legislation made significant changes to the U.S. tax law, including a reduction in the corporate tax rate from

35%

to

21%

starting in

2018.

In accordance with Staff Accounting Bulletin

No.

118,

which provides guidance on accounting for the tax effects of the

2017

Tax Act, the Company has recorded the impact on the consolidated financial statements. There were

no

significant changes in the provisional amount recorded in

2017

related to the finalization of the Company’s analysis. The other provisions of the Tax Act did

not

have a material impact on the

2017

consolidated financial statements.

Income Tax Expense

The components of the Company’s income before income taxes and its provision for (benefit from) income taxes consist of the following:

	Years ended December 31,
	2018			2017			2016
Income before income taxes
Domestic	$	26,227		$	48,446		$	50,181
Foreign		(3,020	)		(2,244	)		689
	$	23,207		$	46,202		$	50,870

	Years ended December 31,
	2018			2017			2016
Provision for (benefit from) income taxes:
Current provision:
Federal	$	4,783		$	12,608		$	14,982
State		1,644			2,737			3,265
Foreign		405			31			302
		6,832			15,376			18,549
Deferred provision:
Federal		(992	)		(426	)		(70	)
State		(152	)		(68	)		(84	)
Foreign		(1,203	)		(496	)		(72	)
		(2,347	)		(990	)		(226	)
Total provision	$	4,485		$	14,386		$	18,323

Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

	December 31,
	2018		2017
Deferred tax assets:
Net operating loss carry forward, foreign	$	1,382	$	959
Stock-based compensation expense		3,148		2,309
Foreign currency exchange		363		265
Accrued expenses and other		818		496
Inventory reserve		1,500		740
Deferred tax assets	$	7,211	$	4,769

	December 31,
	2018			2017
Deferred tax liabilities:
Acquisition-related Intangibles	$	(2,405	)	$	(2,743	)
Depreciation		(8,348	)		(7,419	)
Deferred tax liabilities	$	(10,753	)	$	(10,162	)
Net deferred tax liabilities	$	(3,542	)	$	(5,393	)

Tax Rate

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

	Years ended December 31,
	2018			2017			2016
Statutory federal income tax rate		21.0	%		35.0	%		35.0	%
State tax expense, net of federal benefit		5.5	%		4.8	%		4.5	%
Impact of rate change on deferred taxes		0.0	%		(4.9	%)		0.0	%
Permanent items, including nondeductible expenses		(1.4	%)		0.1	%		0.1	%
State investment tax credit		(0.2	%)		(0.7	%)		(0.1	%)
Federal, state and foreign research and development credits		(3.4	%)		(1.4	%)		(0.9	%)
Foreign rate differential		(0.4	%)		0.5	%		(0.1	%)
Domestic production deduction		0.0	%		(2.8	%)		(2.9	%)
Stock compensation		(4.8	%)		(0.2	%)		0.1	%
Non-deductible Section 162(m) compensation limitation		4.3	%		0.7	%		0.3	%
Foreign derived intangible income deduction		(1.3	%)		0.0	%		0.0	%
Effective income tax rate		19.3	%		31.1	%		36.0	%

As of

December 31, 2018,

the Company had NOL’s for income tax purposes in Italy of

$5.8

million that do

not

expire.

Accounting for Uncertainty in Income Taxes

The Company had

no

unrecognized tax benefits for the years ended

December 31, 2018

and

2017,

respectively.

The Company does

not

anticipate experiencing any significant increases or decreases in its unrecognized tax benefits within the

twelve

months following

December 31, 2018.

In the normal course of business, Anika and its subsidiaries

may

be periodically examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The

2015

through

2017

tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes. The

2012

through

2017

tax years remain subject to examination by the appropriate governmental authorities for Italy.

Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit. With the adoption of ASU

2016

-

09

in

2017,

the Company records windfall tax benefits to income tax expense. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded a windfall tax benefit in income tax expense of

$1.5

million in

2018

compared to

$0.4

million in

2017.